“Ten thousand is what we’ve got.”
You’ve priced the work at twelve. The call ends, you say you’ll come back to them, and then you sit down and take two thousand pounds out of it. A bit off the discovery, a bit off the design, drop the second round of amends, trim the project management because you’ll absorb that yourself anyway. Send it back at ten. They say yes.
Everyone does this. I’ve done it. The thing I keep turning over is what you actually knew at the moment you did it.
The advice doesn’t fit the business
Price for value, not for cost. It’s the most repeated piece of pricing advice there is, and I don’t disagree with it, but it’s advice written for someone whose costs are simple enough to be beneath their attention.
Yours aren’t. When you sell people and time, cost isn’t something you look up. It’s an estimate of how long a thing will take, laid over an assumption about who’s available to do it, sitting on top of an overhead recovery that was worked out when you were a different size. Price for value all you like, you still need to know cost well enough to know whether the value price covers it, and in a project business that’s real work rather than a lookup.
Cost doesn’t disappear because someone told you to price for value. It just stops being examined.
Pricing isn’t a stack of blocks with a markup on top
The model most of us carry around is additive. Work out the parts, add them up, put a bit on, that’s the price.
Some of your pricing does work like that. Plenty of it doesn’t.
Sometimes you price low on purpose, because it’s a client you want on the website, or a sector you’re trying to get into, or a first job with someone whose second job is the one worth having. Sometimes you price high because you don’t especially want the work. Sometimes the client tells you the number and the whole exercise runs backwards, where the price is settled and what’s in question is what fits inside it.
None of those are wrong. They’re all legitimate moves. They’re also all decisions, though, and a stack of blocks with a markup on top can’t tell you whether you’ve made a good one.
The supermarket
Supermarkets are famous for losing money on petrol. It gets you onto the site, and what you spend inside more than covers it.
That’s a loss-leader, and it’s a perfectly good play. What makes it a play rather than a mistake is that the supermarket knows, to the penny, what the petrol loses. It knows what an average visit is worth, how often a fuel stop turns into a shop, and how much it can afford to give away before the arithmetic stops working. Someone has done those sums, someone reviews them, and if the trade stops paying they will see it and stop.
Take two thousand pounds off a twelve thousand pound quote and you might be making exactly the same move. You might also be losing money on three of the five things in it and picking up the difference from somewhere else entirely, with no idea which three.
The number that comes out is identical, and what you can do afterwards isn’t.
Deliberate and accidental produce the same invoice
This is the distinction I’d put at the centre of the whole thing.
A loss you chose is a strategy. You know what you gave away, you know what you expected to get for it, and in six months you can go back and look at whether you got it. If you didn’t, you stop.
A loss you didn’t choose is just a fact about your business that you’ll find out about later, if at all, and usually in the form of a vague sense that you’re busy and it doesn’t feel like it should. You can’t stop doing it, because you can’t see which part of it to stop.
Same invoice, same ten thousand pounds, and only one of them is something you can learn from.
Is the average good enough?
Here is where I’m honestly not sure, and it’s the part I most want to know more about.
You could argue the line by line doesn’t matter much. If the work overall makes what it needs to make, does it really matter that discovery loses and the build carries it? Businesses run on averages all the time and mostly get away with it.
I think it starts to matter at the point the mix changes, which happens without anyone announcing it. While the losing part is small, it’s noise. Win three of those clients in a row, or watch the part you absorb grow because that’s the part clients now ask for, and the average that was fine stops being fine while nothing on any screen changes. The average was never the point. It was just the thing you could see.
What I actually want to find out
What I don’t know, and what I’ve started asking people, is which of two situations this really is.
It might be that you can see the shape of a job well enough, and you choose not to go line by line because your judgement is good and the detail would cost more to produce than it returns. That’s a defensible position and I’d want to hear it made.
Or it might be that the information isn’t there in any usable form, the last attempt to build it died on the timesheets, and what’s left is a sensible acceptance that this is one of the things you can’t see, so you go on instinct, and instinct is mostly right.
From outside those two look the same. Both end with a shaved-down quote and a yes. As problems they have almost nothing in common, and only one of them has a fix.
If you’ve priced a job backwards from a client’s budget recently, I’d genuinely like to know what you could see while you were doing it. That’s the sort of thing I’m collecting at the moment.